The Evaluation of Corporate Compliance Programs document makes clear that operationalization of compliance into an organization should be done at multiple levels in a company. Creating an ethical culture is an important step for any company to burn compliance into the DNA of a business. It must be done at every level of an organization on a continuous basis.

In an article in the Harvard Business Journal (HBJ) online publication by Christopher McLaverty and Annie McKee, entitled “What You Can Do to Improve Ethics at Your Company”, the authors surveyed C-suite executives and noted, “More often the dilemmas were the result of competing interests, misaligned incentives, clashing cultures.” Based on this study and their prior work, the authors noted three major obstacles to ethical behavior.

Initially was the issue of corporate change. The authors stated, “Companies can warp their own ethical climate by pushing too much change from the top, too quickly and too frequently. Leaders in the study reported having to implement staff reduction targets, dispose of big businesses in major markets, and lead mergers and acquisitions. Some of these activities included inherent conflicts of interest; others simply caused leaders to have to act counter to their values. Many leaders felt poorly prepared for the dilemmas they faced and felt compelled to take decisions they later regretted.”

The second was the age old dilemma of compensation where incentives tended to drive certain behaviors or, as the authors stated, “People do what they are rewarded to do, and most leaders are rewarded for hitting targets.” Of course the most recent example is Wells Fargo where employee compensation was based solely on the number of accounts they opened. Yet such incentive based behavior was not limited to front line employees as the authors stated, “The lure of incentives are a problem in boardrooms too: Bonus payments and executive share schemes are often based on short-term business metrics, which can be counter to long-term success.”

Finally, was an area which may require a Chief Compliance Officer (CCO) or compliance practitioner to think through several different calculi; cross cultural differences. Obviously some countries have gift giving cultures but this is more than simply the value of a gift to give at Christmas, it involves cultures where gift giving may be a part of the overall business relationship. The authors cited examples such as “closing a sales office in Japan, breaking a verbal promise made during after-work drinks in China, or ignoring “sleeping” business partners in a Saudi Arabian deal, all of which have cultural and ethical components.”

An interesting insight was teaching employees how to understand what matters in an organization. This is not simply the written Codes but how things really work. The authors posited three questions: (1) How are employees paid? Obviously a compensation plan is a critical benchmark. If it is solely based on ‘eat what you kill’, focusing on the short term, it may presage problems down the road. (2) Who gets promoted and why? This is not simply whether the high producer gets promoted but how about those who speak up and raise ethical issues. Are they subtly (or not so subtly) discriminated against or held back from promotion? (3) How do employees feel about their organization? Although it seems straight-forward, if your employees are disengaged or worse yet, ashamed about your company, you might be an ethical time bomb waiting to happen.

The authors then turned to initiatives that the interviewees had successfully used in their own organizations to improve the ethical climate. While noting that there is some importance in the corporate governance documents, such as a Code of Conduct and policies and procedures, the authors averred “Companies become ethical one person at a time, one decision at a time.” This means employees need to understand their organizations underlying culture. They stated, “Self-awareness enables you to build and strengthen that inner compass. Organizational awareness enables you to identify the forces in your company’s culture and processes that could drive you and others to do the wrong thing. You also need emotional self-control: it takes courage to step away from the crowd and do the right thing.”

To have such courage, the authors noted many employees who did speak up had a personal network which operates as “an informal sounding board and can highlight options and choices that the leader may not have considered. When making ethical decisions, it’s important to recognize that your way isn’t the only way, and that even mandated choices will have consequences that you must deal with.” This is yet another reason for the breaking down of silos in a corporate organization because “The challenge is that most leaders have networks full of people who think and act like them and many fail to seek out diverse opinions, especially in highly charged situations. Instead, they hunker down with people who have similar beliefs and values. This can lead to particularly dire consequences in cross-cultural environments.”

Finally, and perhaps most intuitively, is speaking up. Here business leaders must encourage not only a speak up culture but also one of no retaliation. But it is more than this as Vanessa Rossi, FCPA Due Diligence Counsel at Baker Hughes Inc. noted in a panel discussion to the Greater Houston Business and Ethics Roundtable, it is more tones at the tops as for many employee’s senior leadership resides in the form of their direct manager. The authors phrase it as “If you find you need to speak up, there will be a number of choices to be made. Do you talk to the boss? Consult with peers? Work with advisory functions such as legal, compliance or human resources? You can draw on your personal network for support and guidance on the right way forward within the context of your unique situation.”

Ethics and compliance blend together in the corporate world. It is not just the responsibility of CCOs and compliance practitioners but of senior managers to support those employees who want to do the right thing. While written protocols are significant in both detection and prevention, one should never lose sight of a corporate culture as a way to positively impact your workforce and company going forward.

Three Key Takeaways

  1. Beware of the three obstacles to creating an ethical culture.
  2. What really matters in your company?
  3. A speak up culture will improve the operational performance of your business.

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.

The exit interview can be a further mechanism to operationalize compliance. This type of interview is used when someone voluntarily departs from a company, as opposed to a lay-off or reduction in force exercise. Typically departing employees are more willing to share about their experiences, concerns and issues which led to their employment departure.

In an article in the Harvard Business Review, entitled “Making Exit Interviews Count, authors Everett Spain and Boris Groysberg demonstrate that exit interviews, when conducted with care, can be a very useful tool in two important areas: to increase employee engagement, to reveal what may not be working in the organization. These points speak directly to operationalizing compliance through Human Resources (HR). Exit interviews can provide insight into what employees are thinking, reveal problems in the organization, and shed light on the competitive landscape. They believe that companies should focus on six goals in their exit interviews, that there must be an emphasis in both “tactics and techniques” and, finally, that the process is a continuing conversation.

Uncover issues. Organizations “that conduct exit interviews almost always pursue this goal but often focus too narrowly on salary and benefits.” The problem with this approach is that salary concerns are not usually what drives employees to seek employment elsewhere. It is almost always something else. The article stated, “One leader from a food and beverage company told us that exit interviews inform his company’s succession planning and talent management process.”

Understand employees’ perceptions of the work itself. The person conducting the exit interview understand the departing employee’s job design, working conditions, culture, and peers. By understanding and questioning the employee on this information, the exit interview “can help managers improve employee motivation, efficiency, coordination, and effectiveness.”

Gain insight into managers’ leadership styles and effectiveness. Leadership style is an important reason many employees depart for greener pastures. By inquiring into and understanding this dynamic, an organization can begin to “reinforce positive managers and identify toxic ones. One executive at a major restaurant chain told us that several exit interviews she’d recently conducted revealed that micromanagement was a big problem. The conversations, she said, “led to some very tangible outcomes,”” such as establishing training and development initiatives to create better managers.”

Learn about HR benchmarks (salary, benefits) at competing organizations. While salaries and compensation packages are usually not the driver of departures, they certainly do play a role. You should use the exit interview to do some benchmarking. The authors cited to a HR executive at a global food and beverage who noted, “We use exit interviews to see how competitive we are against other employers: time off, ability to advance, different benefits, and pay packages. And we want to see who is poaching our people.”

Foster innovation by soliciting ideas for improving the organization. The authors believe that exit interviews should go beyond the departing employee’s “immediate experience to cover broader areas, such as company strategy, marketing, operations, systems, competition, and the structure of his or her division.” They cite as one “emerging best practice is to ask every departing employee something along the lines of “Please complete the sentence ‘I don’t know why the company doesn’t just ____.’” This approach may reveal trends which can be incorporated into future innovations.”

Create lifelong advocates for the organization. This is perhaps the most innovative, yet in many ways the most basic, which is of course to treat departing employees with dignity, respect and gratitude. Such treatment at departure may well encourage departing employees to recommend their former companies to potential employees, to use and recommend the companies’ products and services, and to create business alliances between their former and new employers. The authors cite to one North American financial services executive for the following, “You want [a departing employee] to leave as an ambassador and customer.”

Finally are issues around hotlines, whistleblower and retaliation claims. The starting point for layoffs should be whatever your company plan is going forward. The retaliation cases turn on whether actions taken by the company were in retaliation for the hotline or whistleblower report. This means you will need to mine your hotline more closely for those employees who are scheduled or in line to be laid off. If there are such persons who have reported a FCPA, Code of Conduct or other ethical violation, you should move to triage and investigate, if appropriate, the allegation sooner rather than later. This may mean you move up research of an allegation to come to a faster resolution ahead of other claims. It may also mean you put some additional short-term resources on your hotline triage and investigations if you know layoffs are coming.

The reason for these actions are to allow you to demonstrate that any laid off employee was not separated because of a hotline or whistleblower allegation but due to your overall layoff scheme. However, it could be that you may need this person to provide your compliance department additional information, to be a resource to you going forward, or even a witness that you can reasonably anticipate the government may want to interview. If any of these situations exist, if you do not plan for their eventuality before the employee layoff, said (now) ex-employee may not be inclined to cooperate with you going forward. Also if you do demonstrate that you are sincerely interested in a meritorious hotline complaint, it may keep this person from becoming a SEC whistleblower.

Three Key Takeaways

  1. The exit interview is an excellent opportunity to obtain information to inform your compliance program.
  2. Use the exit interview to create advocates from departing employees.
  3. Use the exit interview for probing and insight questions around compliance.

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.

Employment separation and layoffs can present some unique challenges for the compliance practitioner. Employees can use layoffs to claim that they were retaliated against for a wide variety of complaints, including those for concerns that impact the compliance practitioner. Yet there are several ways that operationalization will help to protect your company as much as possible.

Before you begin your actual layoffs, the compliance practitioner should work with your legal department and HR function to make certain your employment separation documents are in compliance with the Securities and Exchange Commission (SEC) requirement regarding Confidentiality Agreement and Separation Agreement language which purports to prevent employees from bringing potential violations to appropriate law or regulatory enforcement officials. Such documents must not have language preventing an employee taking such action. But this means more than having appropriate or even approved language in your CA, as you must counsel those who will be talking to the employee being laid off, not to even hint at retaliation if they go to authorities with a good faith belief of illegal conduct. You might even suggest, adding the appropriate language to your script so the person leading the conversation at the layoff can get it right and you have a documented record of what was communicated to the employee being separated.

When it comes to interacting with employees first thing any company needs to do, is to treat employees with as much respect and dignity as is possible in the situation. While every company says they care (usually the same companies which say they are very ethical), the reality is that many simply want terminated employees out the door and off the premises as quickly as possible. At times this will include an ‘escort’ off the premises and the clear message is that not only do we not trust you but do not let the door hit you on the way out. This attitude can go a long way to starting an employee down the road of filing a claim for retaliation or, in the case of FCPA enforcement, becoming a whistleblower to the SEC, identifying bribery and corruption.

Treating employees with respect means listening to them and not showing them the door as quickly as possible with an escort. From the compliance perspective this could also mean some type of conversation to ask the soon-to-be parting employee if they are aware of any FCPA violations, violations of your Code of Conduct or any other conduct which might raise ethical or conflict of interest concerns. You might even get them to sign some type of document that attests they are not aware of any such conduct. I recognize that this may not protect your company in all instances but at least it is some evidence that you can use later if the SEC or Department of Justice comes calling after that ex-employee has blown the whistle on your organization.

I would suggest that you work with your HR department to have an understanding of any high-risk employees who might be subject to layoffs. While you could consider having HR conduct this portion of the exit interview, it might be better if a compliance practitioner was involved. Obviously, a compliance practitioner would be better able to ask detailed questions if some issue arose but it would also emphasize just how important the issue of FCPA compliance, Code of Conduct compliance or simply ethical conduct compliance was and remains to your business.

Finally, are issues around hotlines, whistleblower and retaliation claims. The starting point for layoffs should be whatever your company plan is going forward. The retaliation cases turn on whether actions taken by the company were in retaliation for the hotline or whistleblower report. This means you will need to mine your hotline more closely for those employees who are scheduled or in line to be laid off. If there are such persons who have reported a FCPA, Code of Conduct or other ethical violation, you should move to triage and investigate, if appropriate, the allegation sooner rather than later. This may mean you move up research of an allegation to come to a faster resolution ahead of other claims. It may also mean you put some additional short-term resources on your hotline triage and investigations if you know layoffs are coming.

The reason for these actions are to allow you to demonstrate that any laid off employee was not separated because of a hotline or whistleblower allegation but due to your overall layoff scheme. However it could be that you may need this person to provide your compliance department additional information, to be a resource to you going forward, or even a witness that you can reasonably anticipate the government may want to interview. If any of these situations exist, if you do not plan for their eventuality before you layoff the employee, said (now) ex-employee may not be inclined to cooperate with you going forward. Also if you do demonstrate that you are sincerely interested in a meritorious hotline complaint, it may keep this person from becoming a SEC whistleblower.

Three Key Takeaways

  1. Treat departing employees with dignity.
  2. Make sure your separation documents meet SEC requirements regarding disclosures re: whistleblowing.
  3. You must check your hotline and anonymous reporting systems to make sure you do not lay off a whistleblower.

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.

What should a company do when it desires to hire a Chief Compliance Officer (CCO).  I sat down and visited with Maurice Gilbert, the Managing Partner at Conselium Partners LP. Gilbert believes that it behooves any company to find the right CCO or compliance practitioner for the right position. But to do so, a company needs to fully understand and appreciate what it needs from such a position going forward. Unfortunately, many companies do not have this insight at the beginning of the recruitment process.

The process often begins with the company supplied job description, which Gilbert noted is “typically a legacy of various things that are not even updated. It’s a hodgepodge of things that maybe began a few years ago, but it needs to be updated to reflect what’s going on in the company at that particular moment. You have certain business risks. You have certain regulatory risks…. You need to be attentive to those risks so that you could build your profile about what those risks need to be addressed presently.” Moreover, “what you’re going to get in a company job description is just a litany of things that actually could be quite disjointed and may not necessarily make sense for what you’re going to be asking the person to do.”

Gilbert will bring the key company stakeholders into an initial meeting to help them understand the process. Obviously, this will include Human Resources (HR) and others involved in the internal hiring process for the company. Gilbert gets them to rethink their approach to focus on what they will ask the new hire to accomplish because typically there is a disconnect between what the company thinks it needs and what it really needs.

The next step is developing an appropriate job profile. Gilbert will ask the key stakeholders to give him a list of four things they would like the new hire to accomplish in the first year of employment. By limiting to this to four, Gilbert not only ends unrealistic expectations but helps winnow down the inevitable “laundry list of, “We’d like the professional to accomplish 30 things within the first year.” Many of which, are inconceivable. They have to be done in the course of several years. When we’re listening to the response, we, again, are counseling our client as to whether that makes sense or if that’s an unreasonable, let’s say, expectation.”

Gilbert gave an example of a recent search he headed for a client. One of the things he was able to develop at this initial meeting was that the company wanted the CCO “to spend the first two, three months evaluating her staff, to see if she has the appropriate team in place for the rest of the journey. By the way, she’s traveling all over the world doing just that. Evaluating her staff.” However that task alone could take several months. The company also wanted the CCO to perform a comprehensive risk assessment immediately upon starting the position. It is simply not realistic to expect such disparate and time consuming tasks to be performed so quickly, all the while the new CCO would be expected to travel to company locations across the globe.

Another important issue in this initial meeting is the professional growth opportunities that the company will present to any candidate. Gilbert explained that this is something companies do not always appreciate in the hiring process. Yet, as he explained, a company is trying to get a seasoned executive to leave a position so they need to have an attractive package ready to present. It is more than simply salary and benefits. Gilbert said, “we have to capture data such as, “What are career growth options once a person steps in and does a good job for three, whatever, years?” We have to capture data. “What is the culture of the company? What is the culture of the compliance department? What are the hot buttons and the management strategy, if you will, of the hiring authority? How does that person like to interface with the individuals?”

A final query to the company is around the sourcing of candidates. Gilbert needs to know if there are any particular competitors, or companies, which the client feels are hands off for sourcing candidates from and before he leaves this meeting he needs to know the companies that his client does not want Conselium to recruit from.

I found these points quite illuminating for several reasons. First, the company was not clear on what it wanted the new CCO to accomplish and had not thought through what it would need to commit to in terms of resources to have these goals accomplished. The second demonstrated the communications flow facilitated learning on the part of both parties, i.e. for the client this was to have a realistic expectation of the new role and for Gilbert it was to help develop an appropriate Job Profile. It also demonstrated the collaborative nature of the relationship. By engaging in this process Gilbert is able to move from simply a third party executive search firm to a trusted advisor to the client. By having such a relationship Gilbert and his company, Conselium, are able to deliver a much more focused and valuable service beyond the typical generalist experience available inside a corporation in the hiring process.

From these discussions, Gilbert will develop a Job Profile and present to the company to have them sign off on not only the package of what they are looking for in a candidate, but also the package they will be willing to present. Gilbert related that through the capture of and agreement with these points, he is ready to begin the next step, which is to tell the compelling story about the job position on behalf of his client.

Three Key Takeaways

  1. Bring in your key stakeholders to flesh out the job description.
  2. Consider the top four things you would like a new CCO to accomplish in the first year.
  3. For a new CCO to succeed, the company must have a realistic expectation developed before the process begins.

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.

 

 

 

One of the ways to operationalize compliance and to drive it into the DNA of an organization is through a performance review. Indeed, the 2012 FCPA Guidance states, “DOJ and SEC recognize that positive incentives can also drive compliant behavior. These incentives can take many forms such as personnel evaluations and promotions, rewards for improving and developing a company’s compliance pro­gram, and rewards for ethics and compliance leadership. Some organizations, for example, have made adherence to compliance a significant metric for management’s bonuses so that compliance becomes an integral part of management’s everyday concern.”

Most HR experts will opine that properly executed performance appraisals are crucial to organizational productivity as well as the development of employee skills and employee morale. Moreover, they can serve a couple of different functions for a best practices compliance program. First, and foremost, they communicate to each employee their job performance from a compliance perspective. However, one key is not to approach the performance appraisal review as an isolated event but rather a continual process. This means that instead of trying to play catch-up at the last minute, supervisors should provide feedback and assess job performance throughout the year so annual reviews are grounded in a year’s worth of experience. This includes the compliance component of each job. The second area performance appraisals impact is compensation. As noted above, the DOJ and SEC expect that your compliance program will have both discipline and incentives. But those incentives need to be based upon something. The score or other performance appraisal metrics will provide to you a standard which you can measure and use to evaluate for other purposes such as employee promotion or advancement to senior management going forward.

In an article in the Houston Business Journal entitled “6 Ways To Make Performance Reviews More Productive”; provided six points you should consider which I have adapted for the compliance component of an annual employee performance appraisal.

  1. Prioritize reviews in your schedule – You should schedule the employee performance appraisal at least several days in advance, rather than when a time slot suddenly opens up. You would make sure that you allot sufficient time for unhurried give and take between the reviewer and the employee.
  2. Review the entire year’s performance – You should resist the attempt to focus the discussion on the latest compliance experience. This is called recency bias. If a compliance issue arose in the past month or so, you need to keep it in perspective for the entire review period. Moreover, by focusing a review on a recent problem you may obscure prior accomplishments and make an employee feel demoralized. Take care not to go too much in the opposite direction as recency bias can work both ways, and one should not let a favorable recent compliance event overshadow the full review period.
  3. Do not hesitate to critique – Be generous with praise where it is warranted, but do not hesitate to discuss improvements needed in the compliance arena. Many supervisors are reluctant to confront and indeed desire to avoid confrontation. However remaining silent about an employee’s compliance shortcomings is a disservice to both the company and the employee.
  4. Do not dominate the conversation – Remember that you must give the employee time for self-appraisal and to ask questions or to comment about the feedback received from the compliance perspective. If there are specific questions or concerns raised by the employee you need to be prepared to address them as appropriate.
  5. Understand the employee’s role – You need to understand and appreciate that if the recent economy has resulted in many employees assuming the responsibilities of more than one position. If relevant to the employee, acknowledge that fact and take it into account in the review. This is certainly true from the compliance perspective as many non-Compliance Department employees have cross-functional responsibilities. If they claim not to have the time to handle their compliance responsibilities you will need to address this with the employee and perhaps structurally as well.
  6. Anticipate reprisal – Although it is rare, you can face the situation where an employee who is very dissatisfied with a review may refuse to sign it. The employee may be offered the opportunity to add a statement to the review. Also point out that the employee signature is an acknowledgement of receiving the review and does not signify agreement. If the employee still refuses to sign, have a second supervisor come in to witness the refusal. This may be particularly important from the compliance perspective.

The article ends by noting, “A proper annual review requires considerable effort from employee supervisors. It should be a full-year process involving regular guidance and feedback and perhaps several mini-reviews along the way. But rather than viewing it as onerous, supervisors should keep in mind that it is a tool for making their departments work more efficiently and yields better results for everyone involved.” I would add this is doubled from the compliance perspective. The potential upside can be significant from your overall compliance program perspective.

Three Key Takeaways

  1. To incentivize compliance, you must be able to accurately appraise senior managers and employees around compliance.
  2. Clearly communicate your compliance expectations, then fairly evaluate employees on them.
  3. Consider an ongoing review as well.

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.